Fiscal cliff-hanging

They’re breaking out the bubbly over in the white sepulchre called the state Capitol. Rather than the past years of teeth-gnashing and garment-rending, the Legislature and Gov. Bald Is Beautiful need only close a $1.9 billion gap next year between revenues and spending commitments, according to a vaunted legislative analyst.

Even though $1 billion doesn’t go nearly as far as it used to, $1.9 billion seems like scads of greenbacks. Dividing it equally among the state’s 38 million residents would equal a $50 check for everyone. Those checks would be a sweet bit of pump priming, particularly this time of year when the cash likely would spur the economy by subsidizing holiday purchases and increasing retail sales, as well as the taxes paid on those sales, which are split by state and local government. California has squandered $1.9 billion (and more) on worse ideas.

Sadly, that won’t happen this year, but maybe in 2014, the analyst says. If everybody is prudent and exercises fiscal restraint (was that somebody snickering?), “there is a strong possibility of multibillion-dollar operating surpluses within a few years.” That means more money for public schools and road repairs. Maybe a moratorium on college and university tuition and fee increases. Always better to be flush than flushed.

For the ’Crats and the glad-handing mannequins beneath the dome, $1.9 billion is chump change. For the fiscal year that ends June 30, 2013, the state expects to rake in $133 billion in fees, assessments and taxes. Doing the math, the hole is 1.4 percent of total revenues. A rounding error.

This is a bodaciously big deal given that the current year’s budget forced folks to fill a hole of $15.7 billion, a $26.6 billion mess the previous year. Relative to $1.9 billion, those aren’t gaps between spending and revenues, they’re yawning chasms over which Evel Knievel would flame out about one-third of the way across.

So who’s the state’s sugar daddy? Primarily, a less anemic economy and bogus rich people. The Armani-clad habitués of Needless-Markup. The insufferably beautiful people lighting Montecristo cigars with $20 bills in luxuriant 7,000-square foot, ocean view McMansions with Century Cinedome entertainment systems and 17-car garages.

That was the pitch behind Proposition 30—hose the hoity-toity or hose schools by $5.5 billion. Voters thought California’s noblesse would oblige in kicking down more in income taxes for the next seven years and having everyone eat a one-quarter-of-1-percent-sales-tax bump for four years was the better play.

Maybe. Maybe not. There are 243,373 taxpayers with income of $300,000 or more. Their state tax rate will increase from 9.3 percent to 12.3 percent, depending on how much they stock away each year. Of the 243,373, roughly 34,000 had income of $1 million or more, according to state tax-board statistics for 2009, the most recent year available. Those 243,373 represent 1.6 percent of the state’s 14.6 million filers, but they already pay 40 percent of state income taxes.

The analyst says laying more of the tax burden on these “richies” could create “multibillion-dollar swings” in revenue, since the income of these folks comes more from investments and business ventures than salaries and wages. Collections in an already volatile tax system will spike and trough even more dramatically.

Some of these “big” earners are small businesses—LLCs, S corporations, mom-and-pop outfits that have blossomed into $1 million concerns—who pay income taxes instead of business taxes. A bigger state-tax nut, an increase of 30 percent for earners of $1 million or more, means no more hiring, no more expansion, just hunkering down and waiting for the strafing of the bottom line to subside.

This state-tax increase coincides with various federal taxes likely going up as a result of the sure-to-be-rinky-dink steamer Congress and the president plop down to keep the country from plunging off the “fiscal cliff” on January 1.

So don’t be shocked if the analyst sings a less up-tempo tune next year.